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2014 NAIC Spring Meeting Review Update Thursday, April 24, 2014 @ 2:00 PM EDT

2014 NAIC Spring Meeting Review Update Thursday, April 24, 2014 @ 2:00 PM EDT

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Page 1: 2014 NAIC Spring Meeting Review Update Thursday, April 24, 2014 @ 2:00 PM EDT

2014 NAIC Spring Meeting Review Update

Thursday, April 24, 2014@ 2:00 PM EDT

Page 2: 2014 NAIC Spring Meeting Review Update Thursday, April 24, 2014 @ 2:00 PM EDT

2014 NAIC Spring Meeting Review Update

Introduction Welcome

Beech Turner, VP-Finance – Assurant Solutions and VP-e-Learning - IASA

• Housekeeping Items Q&A and Survey Turn off cell phones, pagers, etc. Q&A at the end of the session

Today’s Topic NAIC Spring Meeting Review Update

Today’s Speakers

Carolyn Albertson, Product Marketing Manager – Merrill Corporation John Bauer, Vice President of Financial Reporting - Prudential Financial Dennis Lebar, Senior Regulatory & Accounting Specialist– SunGard iWorks Financials

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Page 3: 2014 NAIC Spring Meeting Review Update Thursday, April 24, 2014 @ 2:00 PM EDT

2014 NAIC Spring Meeting Review

Carolyn J Albertson, Merrill Corporation

• Carolyn is well known in the statutory accounting segment of the insurance industry, having spent many years in the financial print services industry providing information and educational services such as newsletters, regulatory updates, webinars and seminars for insurers. She is actively involved in monitoring the activities of the National Association of Insurance Commissioners (NAIC) and serves on many of the NAIC’s Interested Persons groups. Albertson is a regular speaker at many insurance related conferences. She serves on a number of committees for the Insurance Accounting and Systems Association (IASA). Albertson currently serves on the Board of the Mid-Atlantic Chapter of the IASA, having served previously as Secretary and President.

•Prior to joining the financial print services industry, she was Data Base Manager for the NAIC. In that role, she oversaw the annual statement data base project and served as staff support to a number of NAIC committees.

•Carolyn received a Bachelor of Arts degree from Hiram College in Hiram Ohio.

• 

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Page 4: 2014 NAIC Spring Meeting Review Update Thursday, April 24, 2014 @ 2:00 PM EDT

2014 NAIC Spring Meeting Review

John J. Bauer, FLMI, Prudential Financial

•John is currently a Vice President, Financial Reporting with Prudential Financial, Inc. and he has responsibility for all of Prudential’s NAIC/ACLI relationships with external regulators and industry groups as they pertain to accounting and financial reporting. John is also responsible for coordination of State Examinations for The Prudential Insurance Company of America and any of Prudential’s domestic insurance subsidiaries. John joined Prudential in 1981 as a Staff Accountant. Until 1990, John worked in the Accounting areas of two Prudential subsidiaries, Prudential Reinsurance Company (now Everest Reinsurance Company) and Pruco Life Insurance Company. John transferred to the Comptrollers Department of Prudential in 1990. John’s primary focus in these positions was statutory reporting and disclosure.

• John also served as National President, for 2007-2008, of the Insurance Accounting and Systems (IASA) organization.

•  John graduated from Rider University in 1981 with a Bachelors’ degree in Accounting and currently resides in Milltown, NJ.

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Page 5: 2014 NAIC Spring Meeting Review Update Thursday, April 24, 2014 @ 2:00 PM EDT

2014 NAIC Spring Meeting Review

Dennis M. Lebar, CPA, Senior Regulatory & Accounting Specialist , SunGard iWorks Financials

Dennis is the Senior Regulatory and Accounting Specialist for SunGard’s insurance segment. He has been a member of the SunGard Development team for over twenty years. During this time, he has been instrumental in the successful development and deployment of several investment/accounting related products. In his position, Dennis provides accounting and regulatory expertise to ensure that SunGard’s insurance products and services remain regulatory compliant. Dennis develops regulatory documents to ensure SunGard’s client base is aware of current and upcoming regulations. He attends all the NAIC National meetings, and is involved in several “interested persons” groups providing feedback to the various committees of the NAIC. Dennis is also an active member of NASVA and participates in educational seminars sponsored by the IASA.

Dennis has a Masters Degree in Accounting from the University of Colorado, and is an active CPA.

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Page 6: 2014 NAIC Spring Meeting Review Update Thursday, April 24, 2014 @ 2:00 PM EDT

Overview Summary

Emerging Accounting Issues Working Group (EAIWG) Statutory Accounting Principles Working Group (SAPWG) Blanks Working Group

Investment Reporting Subgroup

Capital Adequacy Task Force (CADTF) Investment RBC Working Group Life Risk Based Capital Working Group Operational Risk Subgroup

Valuation of Securities Task Force (VOSTF) Invested Asset Working Group

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Page 7: 2014 NAIC Spring Meeting Review Update Thursday, April 24, 2014 @ 2:00 PM EDT

Overview Summary (continued)

Principles-Based Reserving Implementation Task Force PBR Blanks Reporting Subgroup

• Casualty Actuarial and Statistical Task Force • Corporate Governance Working Group

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Page 8: 2014 NAIC Spring Meeting Review Update Thursday, April 24, 2014 @ 2:00 PM EDT

Emerging Accounting Issues Working Group (EAIWG)

• Adopted – INT 13-04: Accounting for Risk-Sharing Provisions of the Affordable Care Act

• Exposed – No new issues were exposed.

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Page 9: 2014 NAIC Spring Meeting Review Update Thursday, April 24, 2014 @ 2:00 PM EDT

Statutory Accounting Principles Working Group (SAPWG)

The Statutory Accounting Principles Working Group met and

discussed positions. They primarily focused on the following:

1. Structured Notes Disclosure

2. Investment Classification Review

3. SSAP No. 35 – Proposed ACA Roll Forward

4. ASU 2014-03 Derivatives and Hedging

5. 2014-07 SSAP No. 11 Postemployment Benefits and Compensated Absences

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Page 10: 2014 NAIC Spring Meeting Review Update Thursday, April 24, 2014 @ 2:00 PM EDT

Blanks Working Group

• Adopted– Report from the Investment Reporting Subgroup– List of eight editorial changes

• Discussed – Five exposures from the Fall National Meeting

• Four adopted Modification to the Supplemental Compensation Exhibit (All business types) Modify Federal ID Column description on Schedule Y (All business types) Add questions for Actuarial Memorandum to Supplemental Interrogatories Life and Fraternal only) Move disclosure for Offsetting and Netting of Assets and Liabilities from Note 21 to Note 5 (All

business types)

• One deferred Add additional lines to AVR Default Component and Equity and Other Invested Assets Component

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Page 11: 2014 NAIC Spring Meeting Review Update Thursday, April 24, 2014 @ 2:00 PM EDT

Blanks Working Group (continued)

• Exposed fifteen new items (Comment deadline May 8):

– Clarify Schedule P instructions for re-stating data due to change in pool percentage (PC only).

– Move Note for Joint and Several Liabilities from 21 to 14 (All business types).

– Add column and instruction to Schedule S – Part 3 – Sections 1 and 2 for type of business ceded. Add general interrogatory related to authorized captive reinsurers. (Life, Health and Fraternal)

– Modify instructions for Exhibit 3a to incorporate guidance that was adopted last year (Health only).

– Modify instructions for NAIC Company Code, Alien Insurer ID Number, Pool/Association Number, and Certified Reinsurance Number for clarification. (All business types)

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Page 12: 2014 NAIC Spring Meeting Review Update Thursday, April 24, 2014 @ 2:00 PM EDT

Blanks Working Group (continued)

• Exposed fifteen new items (Comment deadline May 8):

– Add new disclosure to Note 5 for Structured Notes. (All business types)

– Modify Note 22, events Subsequent, to reflect additional disclosures related to ACA assessment. (All business types)

– Add new line of business to the State Page and the IEE as Line 2.4 Private Crop (Health and PC)

– Modify definition of contingent deferred annuities in the instructions for Exhibit 5 Interrogatories (Fraternal, Health and Life)

– Modify Note 12, Retirement Plans, Deferred Compensation (All business types)

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Page 13: 2014 NAIC Spring Meeting Review Update Thursday, April 24, 2014 @ 2:00 PM EDT

Blanks Working Group (continued)

• Exposed fifteen new items (Comment deadline May 8):

– Add electronic only column to Schedules A, B, and BA for reporting postal code and property type. Add electronic only column to Schedules B and BA for maturity date. (All business types)

– Add new disclosure to Note 24 related to the risk sharing provision of the Affordable Care Act. (All business types)

– Modify Actuarial Opinion instructions. (Fraternal and Life)

– Modify the Actuarial Instructions regarding pooling arrangements. (Property and Title)

– Add new supplement with details of reinsurers aggregated on Schedule F. Add new note 23J. (Property only)

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Page 14: 2014 NAIC Spring Meeting Review Update Thursday, April 24, 2014 @ 2:00 PM EDT

Investment Reporting Subgroup

• 2014 Charges:• Review requests for investment schedule blanks and instructions changes in connection with the work

being performed by the Investment Risk-Based Capital (E) Working Group.

• Review changes requested by the Valuation of Securities(E) Task Force and the Invested Asset (E) Working Group as it relates to their work on other invested assets reporting for technical consistency within the investment reporting schedules and instructions.

• Recent Activities– Review Investments reported on Schedule BA

• Relatively small amount of admitted assets

– But growing

• Possibly decrease the number of categories

• Provide for a more “risk-focused” view– Hedge Funds

– Equity Funds

• Involve more states in a survey

• Probable modifications to Schedule BA

– Timeframe undetermined

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Page 15: 2014 NAIC Spring Meeting Review Update Thursday, April 24, 2014 @ 2:00 PM EDT

Capital Adequacy Task Force (CADTF)

• Broker Receivable RBC Proposal

• Wholly Owned Single Owner/Single Property Referral

• New Chair of CADTF

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Page 16: 2014 NAIC Spring Meeting Review Update Thursday, April 24, 2014 @ 2:00 PM EDT

Investment RBC Working Group

Update of C1 Factors for Corporate Bonds presented by the American Academy of Actuaries (AAA)• Simulations under various economic scenarios representing a 10 yr. horizon on a representative

Corporate Bond Portfolio• Moody's Default Rates (1983 – 2012)• S&P Recovery Rates (1987 -2012)

•Results

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Page 17: 2014 NAIC Spring Meeting Review Update Thursday, April 24, 2014 @ 2:00 PM EDT

Investment RBC Working Group

Update of C1 Factors for Corporate Bonds•Recommendations

• 14 NAIC classes (designations) replacing the current 1 – 6 designations

– Use +/- suffix

• Breakout by 3 Collateral types

– Senior Secured Debt (represents 16% of industry holdings)

– Senior Unsecured Debt (78% of industry holdings)

– Subordinated Debt (6% of industry holdings)

• Change AVR factors to be consistent with C1 bond factors

• Further refinement and industry testing

• Continue with study of other non-modeled fixed income classes

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Page 18: 2014 NAIC Spring Meeting Review Update Thursday, April 24, 2014 @ 2:00 PM EDT

Investment RBC Working Group

Update of C1 Factors for Corporate Bonds•Proposed Designations

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Page 19: 2014 NAIC Spring Meeting Review Update Thursday, April 24, 2014 @ 2:00 PM EDT

Life Risk Based Capital Working Group/Operational

Risk Subgroup

• Exposures (Life RBC)

– AVR in the Life RBC calculation – C-3 Phase I Proposal– C-3 Phase II Proposal

• Exposure (Operational)

– Operational Risk Component for RBC

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Page 20: 2014 NAIC Spring Meeting Review Update Thursday, April 24, 2014 @ 2:00 PM EDT

Valuation of Securities Task Force (VOSTF)

• New Working Group formed – Securitization Data Integrity Working Group

– Purpose is to develop data quality standards to assess whether new issues of RMBS and CMBS are eligible for modeling

• Staff Report on Structured Notes

– Bloomberg maintains Structured Note Deals – definition is similar to that adopted by the NAIC

• Heard reports regarding non-US GAAP Standards

– Canada – two standards now in place

• Public Companies – IFRS

• Private Companies – Accounting Standards for Private Enterprises (ASPCE) – similar to previous Canadian GAAP

– Request to add National GAAP/National IFRS or Netherlands and France to Permitted Financial Performance Presentation Standards Country List

• Exempts from Foreign to GAAP reconciliation

• Includes Accounting Standards for: Canada, UK, Australia and Germany

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Page 21: 2014 NAIC Spring Meeting Review Update Thursday, April 24, 2014 @ 2:00 PM EDT

Valuation of Securities Task Force (VOSTF)

• Considered Amendments to the SVO Purposes and Procedures Manual

– Adopted the deletion of Short-Dated Non-Principal Protected instructions

– Deferred revisions to the methodology for determining NAIC Designations for Principal Protected Notes

• Proposed weighted average method under further review

– Adopted amendment to the methodology for determining Designation for Catastrophe Bonds

• Now eligible for Filing Exempt (FE) determination

– Adopted a proposal to delete expedited review text from the Regulatory Treatment Analysis Service (RTAS) instructions for Emerging Investment Vehicles (EIV)

– Adopted a proposal to clarify instructions for Debt-Equity Hybrids

• Eligible for FE treatment if Rated by CRP

• Otherwise submit to SVO for Designation– Exposed - Proposal to Update Description of NAIC and of NAIC Processes

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Page 22: 2014 NAIC Spring Meeting Review Update Thursday, April 24, 2014 @ 2:00 PM EDT

Invested Assets Working Group

• Structured Notes Reporting

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Page 23: 2014 NAIC Spring Meeting Review Update Thursday, April 24, 2014 @ 2:00 PM EDT

Principles-Based Reserving Implementation Task Force

• Rector & Associates Inc. Report on Captives

• PBR State status adoption

• Exposure of PBR Statistical Agent Framework

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Page 24: 2014 NAIC Spring Meeting Review Update Thursday, April 24, 2014 @ 2:00 PM EDT

Principles Based Reserving (PBR) Blanks Reporting Subgroup

• Charge: Recommend changes regarding Blanks and instructions for PBR.

• Proposed Changes to Life Annual Statement:• Analysis of Increase in Reserves

• Exhibit 5

• Five-Year Historical Data Exhibit

• Supplemental Exhibits and Schedules Interrogatories

• Interest Sensitive Life Insurance Products Supplement

– NEW 5 Part PBR Supplement

• Proposed Changes to Separate Account Statement:• Analysis of Increase in Reserves

• Exhibit 3

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Page 25: 2014 NAIC Spring Meeting Review Update Thursday, April 24, 2014 @ 2:00 PM EDT

Casualty Actuarial and Statistical Task Force

• Adopted a response to the NAIC/AICPA Working Group referral regarding Schedule P auditing.

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Page 26: 2014 NAIC Spring Meeting Review Update Thursday, April 24, 2014 @ 2:00 PM EDT

Corporate Governance Working Group

– Adopted revisions to the Annual Financial Reporting Model Regulation

• Primarily focused on role of Audit Committee

• Referred over to E Committee

– Exposed Corporate Governance Model Act• Eliminated the Guidance Manual

• Provides for Annual “Disclosure ‘– Not “Prescribed Practices”

• Exposure Period to 4/21/14

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Page 27: 2014 NAIC Spring Meeting Review Update Thursday, April 24, 2014 @ 2:00 PM EDT

Thank you for your attention of today’s presentation. For more information, please contact:

Carolyn Albertson – Phone: 856-264-7572 Email: [email protected]

John Bauer - Phone: 973-802 5803 Email: [email protected]

Dennis Lebar - Phone: 303-689-1620 Email: [email protected]

And now, to our Q&A portion of today’s event.

2014 NAIC Spring Meeting Review

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Page 28: 2014 NAIC Spring Meeting Review Update Thursday, April 24, 2014 @ 2:00 PM EDT

Q&A with Today’s Speakers

John Bauer, Vice President, Financial

Reporting, Prudential Financial

Dennis Lebar, Senior Regulatory & Accounting

Specialist, SunGard iWorks Financials

2014 NAIC Spring Meeting Review

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Carolyn Albertson, Product Marketing Manager,

Merrill Corporation

Page 29: 2014 NAIC Spring Meeting Review Update Thursday, April 24, 2014 @ 2:00 PM EDT

Thank you for joining us!

This presentation will be archived on the IASA website at www.iasa.org. We are interested in your thoughts about this presentation and in topics you may want to see covered in the future.

You will now be directed to a short follow-up survey which we hope you will complete.

If you have difficulty viewing the archived presentation, or would like further information about this and future topics to be covered, please contact:Kim MorrisDirector of Exhibits – IASA [email protected] 919-489-0991 x208

2014 NAIC Spring Meeting Review

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